Windows Live Writer and WordPress 2.3.1

I am having Problems Publishing Images to my Blog using Windows Live Writer it always gives me error that

The Following images cannot be published because the weblog doesn’t support image publishing

and asks me to configure a ftp account to publish images and if i configure a ftp account it works fine, it used to work without configuring an ftp account but it has stopped working since i upgraded to 2.3 and doesn’t work on 2.3.1 either

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